Stakeholder engagement entered the thinking of managers and academics with Edward Freeman’s book Strategic Management: A stakeholder approach (1984), a landmark book which introduced the idea of a firm or corporations purpose to be the creation of value for its stakeholders. Since then attempts have been made to formulate theories about stakeholder engagement, identification and relationships. Most notably Mitchel et al. (1997) which presented a method of stakeholder identification based on power, legitimacy and urgency although Freeman proposed a different method (Freeman, 1984) which was built on by Savage et al. (1991). Friedman and Miles (2002) also presented an alternative based on
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the nature of a firms relationship with its stakeholders. These ideas remain current and popular in both practice and literature with an active discussion of how theory should develop, in particular contributions from Friedman and Miles (2002) and Laplume (2008) have assisted with theory formulation in this complex areas.
The Mitchel et al. (1997) model of identification of salient stakeholders appears to remain the most easily applicable interpretation of stakeholder theory to practice, providing a framework for organisations to use when aiming to identify stakeholders for themselves. Stakeholder theory was adopted extensively by UK government from the mid-1990s onwards where it has been used as a blanket term to describe the public and any organisation or individual who holds a stake in the success of the focus organisation. This is close enough to Freemans often cited definition: “any group or individual who can affect or is affected by the achievement of the organizations objective” (Freeman, 1984) although in 2004 Freeman published the latest definition of stakeholder as “those groups who are vital to the survival and success of the corporation” (Freeman, 2004).
In 1995 Donaldson and Preston (1995) proposed a three-way division within stakeholder theory between normative stakeholder theory as discussed by Friedman and Miles (2002), instrumental stakeholder theory and descriptive stakeholder theory. Donaldson and Preston argue that instrumental stakeholder theory describes how organisations and managers should act to benefit themselves, whilst descriptive stakeholder theory describes how managers and organisations actually behave. However the original normative approach remains dominant in the literature and practice. Organisations acting to bring benefit to their stakeholders, not just shareholders. Friedman and Miles (2002) also introduced a slightly different perspective when proposing that organisations themselves are best considered as a group of stakeholders whom all desire to have their needs satisfied and interests fulfilled. Managers are therefore making decisions to the benefit of that stakeholder group; this leads to principles of corporate legitimacy and later Freeman introduces the doctrine of fair
contracts containing rules on how contracts between organisations and stakeholders should be made. One of these rules was the principle of limited immortality which stated that the organisation should be managed as if there were no time-horizon. This principle echoes with themes around sustainability and sustainable management.
Stakeholder theory has also been adopted and applied across a massive range of applications from natural resource management (Reed et al., 2009), communications (Deephouse, 2000), marketing and consumer profiling (Bhattacharya and Sen, 2003) and form a base to much of the literature on corporate and social responsibility (Aguinis and Glavas, 2012) as it provides a rationale and justification for an organisation choosing to benefit a wider stakeholder group rather than a narrow shareholder group. After nearly three decades of gradual evolution and refinement stakeholder theory has bridged the gap into practitioners thinking, this has brought a new interest into how stakeholder can be engaged by organisations, when, and to what extent.
Engagement with stakeholders allows a decision maker to attempt to accommodate the opinions and preferences of others who may hold salience over either the success of the decision, or the decision itself. Stakeholder buy-in to projects or decisions can increase the likelihood of consensus over complex decisions. Stakeholder engagement is an important part of the planning consent process for construction projects in the UK for instance. According to De Lange et al. (2012) the literature over whether, and to what extent, stakeholder opinion should be included in decision making comes either from political science literature or development theory. Although De Lange et al. (2012) frame this discussion in the context of natural resource management for bio-energy resources rather than supplier selection or supply chain management there are parallels for any multi- stakeholder decision. Both literature sources confirm that stakeholder opinion is important “because without stakeholder participation, decision makers assume the risk of enforcing compliance on an unwilling public” (De Lange et al., 2012) citing (Maguire and Lind,
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2004). However there are clearly potential drawbacks of wholesale stakeholder engagement. By giving too much power to potentially uninformed stakeholders the decision maker loses the ability to justly decide on the optimal alternative. The degree of involvement required by the public is investigated for the case of UK healthcare decision making in Litva et al. (2002) and also by Wiesman et al. (2003) the Australian healthcare system.
Another potential weakness in stakeholder theory worth noting is the perceived emphasis on negotiation over co-operation. This is extenuated by Freemans introduction of contracts which may imply that conflicts and disputes between stakeholder opinions can be resolved through compromise or negotiation. Given the wide and incommensurable nature of possible stakeholder opinions this could become an impossible task for managers of complex stakeholder groups.